EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

The Houston Parking Garage Lighting EPAct Tax Opportunity

By population Houston is America's fourth largest city. However, as compared
to the top three population Cities namely New York, Los Angles, and Chicago,
Houston is a city of car owners that drive everywhere and frequently park in
parking garages both for work and non work activities. Parking garage lighting
retrofits provide one of the best economic opportunities for energy cost
savings and EPAct tax savings.

Houston Population Geography Comparison

The four largest U.S city populations to geography comparison illustrates
why automobiles are the most common mode of transportation in Houston as
presented below.

Houston Population/Geography Comparison

The Tax Opportunity

Pursuant to Section 179D of EPAct and its underlying ASHRAE (American
Society of Heating Refrigeration and Air Conditioning) building energy code,
commercial buildings are eligible for energy efficiency tax deductions of up to
$1.80 per square foot. If a building’s energy reducing investment
doesn’t qualify for the full $1.80 per square foot deduction, then
deductions are available for any of the three major sub-systems, including:

1. Lighting.

2. HVAC (Heating, Ventilation and Air Conditioning).

3. The building envelope.

Each component can qualify for up to 60 cents per square foot in EPAct tax
deductions. The building envelope is anything on the perimeter of the building
that touches the outside world including roof, walls, windows, doors, the
foundation and related insulation layers.

IRS Notice 2008-40 Sec. 6 specifically references parking garages as an
eligible building category for Section 179D tax deductions. Due to the unique
aspects of parking garages, these deductions are usually limited to $0.60 per
square foot for lighting. In order to qualify for the tax deduction, the
lighting system must exceed the efficiency set by ASHRAE.

Houston has a full range of parking garages eligible for both the commercial
and government designer parking garage EPAct tax savings. The opportunities are
as follows:

Potential EPAct Tax Deductions Specific to Parking Garages

Under current law, EPAct parking garage deductions are available for both
new and existing building lighting projects completed between January 1, 2006
and December 31, 2013.

Capturing Previously Missed Tax Deductions

In January of 2011 IRS issued Revenue Procedure 2011. This is a very
beneficial announcement allowing tax payers who previously missed their EPAct
tax deduction to pick up the missed deductions and report it on a current tax
return.

The Three Major Lighting Technologies

The three major parking garage lighting technologies currently used to
achieve energy cost reduction and obtain large EPAct tax deductions are:

• Fluorescent

• LED

• Induction lighting

Each of the three major parking garage lighting technology alternatives have
strengths and weakness that need to be evaluated. Items to consider include
investment price point, utility rebates, building environment, lighting
performance, operating costs, lamp life, warranties, dimming characteristics,
and maintenance costs.

Fluorescent Lighting and EPAct 179D

To date, fluorescent lighting, utilizing T-8 and T-5 lamps, has been the
most common product selection for energy efficient lighting. With fluorescent
lighting conversions, density of fixture layout is critical to minimizing
energy use and maximizing EPAct tax incentives. Without attention to design, we
see some projects that miss tax deductions or only achieve partial tax
deduction. Fluorescent installations generally have the lowest installed price
point of the three major lighting technologies.

LED Lighting and EPAct 179D

LED or Light Emitting Diode lighting is moving quickly into the parking
garage marketplace. There are many competing vendors and garage owners need to
research and compare product offerings. Due to the low wattage level, most LED
parking garage projects qualify for the maximum EPAct tax deduction. However,
some projects are right on the edge of eligibility so it is important to have
an EPAct-knowledgeable reviewer make the calculation.

Induction Lighting and EPAct 179D

In an interesting market development, induction lighting — although
available in the U.S. for over ten years — is enjoying high growth in the
parking garage market albeit from a relatively small installed base. Now that
parking garage owners have two distinct product alternatives in fluorescent and
LED lighting, they seem to be more open to compare and contrast a third
lighting alternative. Induction tends to have a price point in between
fluorescent and LED and has its own particular attributes warranting
evaluation. Induction lighting is actually fluorescent lighting without
electrodes and is sometimes called electrode-less discharge lighting.

Utility Rebates

It is crucial to understand how different utility rebate processes work with
the different lighting technologies. Many utilities offer two types of rebates:
prescriptive and custom.

Prescriptive rebates are a fixed amount per product such as $30 per
fluorescent fixture. Prescriptive rebates are common with high volume mature
product categories because utilities are thoroughly familiar with the
product’s energy performance results. Accordingly most utilities offer
fluorescent rebates based on a prescribed amount available from a prescribed
table or listing.

Custom rebates are tailored or customized to the product’s expected
performance and are normally calculated based on the electricity expected to be
saved. Hence, custom rebates for electricity-based products are sometimes
called kW (kilowatt) rebates. Many utilities are not yet familiar or supportive
of LED and induction lighting products, so the exclusive rebate opportunity may
be a custom rebate.

Since LED and induction lighting is low wattage lighting, a probing into a
custom rebate may lead to a dialogue resulting in a much higher overall rebate
than the typical prescriptive process.

Banned Lighting

Many parking garages still have mainstream prior generation energy
inefficient metal halide and T-12 lighting. As of January 1, 2009, probe start
metal halides are illegal to manufacture in their most common wattage
categories. T-12 magnetic ballasts are now illegal to manufacture as of July 1,
2010. As replacement costs for these banned items increases, parking garage
owners will naturally retrofit to one of the three efficient technologies.

Commercial Garages and EPAct 179D

There are a wide variety of commercial garages where either the garage owner
or a tenant/garage management firm can obtain the EPAct tax deduction benefit
depending on who paid for the energy efficient lighting. Typical commercial
garage owners include commercial city garages, commercial airport garages,
apartment buildings, office buildings, department stores, hotels, and
casinos.

Government-Owned Garages under EPAct 179D

With government-owned garages, the design team is entitled to the EPAct tax
deduction. For tax purposes, a designer can be an architect, engineer, lighting
designer, design and build contractor or an ESCO (Energy Services Company). It
is important to note that by statute, the tax beneficiary is the designer and
not the government entity. The government owner reaps the larger economic
benefit, which is the permanent perpetual energy cost reduction. The parking
garage lighting designer or design team earns a onetime tax incentive for
designing an energy efficient facility. Some of the largest government owned
garage categories include municipal, state universities, and airports.

Act Now

The economic payback is so compelling that parking garages throughout the
country are moving quickly to capture the combined energy savings, utility
rebates and the large EPAct tax savings related to parking garage lighting
retrofits. Large multi-site garage owners that may be resource constrained for
retrofitting all garages at once should be planning to have lighting retrofits
completed on or before December 31, 2013. The overall economics are too
lucrative to justify delay, and financing is available that actually further
enhances the economic return.